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Johnson & Johnson (JNJ - Free Report) beat expectations yet again with first-quarter 2013 earnings (excluding special items) coming in at $1.44 per share, 3 cents above the Zacks Consensus Estimate and 5.1% above the year-ago earnings of $1.37 per share.

Despite the negative impact of currency fluctuation, Johnson & Johnson recorded growth on the back of strong product sales. New product sales and the Synthes acquisition boosted results.

Johnson & Johnson’s first quarter sales increased 8.5% year-over-year to $17.5 billion, just above the Zacks Consensus Estimate of $17.4 billion. While operational factors favorably impacted sales by 9.8%, currency fluctuations had a negative impact of 1.3%. The Synthes acquisition contributed 5.7% to global operational sales growth.

Including one-time items, Johnson & Johnson reported first quarter earnings of $1.22 per share, well below the year-ago earnings of $1.41.

The Quarter in Details

First quarter sales increased 11.2% in the domestic market. Meanwhile, international sales grew 6.3%, consisting of 8.7% operational growth and 2.4% negative currency impact. All segments recorded growth during the reported quarter.

The Medical Devices & Diagnostics segment posted sales of $7.1 billion, up 10.2% year-over year. While operational factors positively impacted Medical Devices & Diagnostics segment sales by 11.9%, foreign exchange movement negatively impacted sales by 1.7%.

Sales in the domestic market increased 11.4% year-over year to $3.2 billion; international market sales increased 9.1% year over year to $3.9 billion. Results included the impact of the Synthes acquisition.

Primary contributors to growth included orthopedic sales from Synthes products, Biosense Webster's electrophysiology business, and some Specialty Surgery products among others. Orthopedics sales increased a whopping 59.7% to $2.4 billion thanks to the Synthes acquisition.

Several Medical Devices & Diagnostics markets have been facing challenges in the form of European austerity measures, pricing pressure and a slowdown in elective surgeries, which have all contributed to more tempered growth rates. However, there have been some signs of improvement in the rate of growth in hospital admissions and surgeries, including joint replacement.

Pharmaceutical segment sales increased 10.4% year-over-year to $6.8 billion (operational growth of 11.4% and negative currency impact of 1.0%). Sales in the domestic market increased 14.7% to $3.5 billion whereas international sales increased 6.1% to $3.3 billion.

New products like Zytiga, Stelara, Xarelto, Simponi and Invega Sustenna continued to perform well. Johnson & Johnson also recorded incremental sales due to the amendment of its distribution agreement with Merck (MRK - Free Report) for Remicade. Other growth drivers included Prezista. First quarter Zytiga sales were $344 million, up 72.0% year-over-year.

The Consumer segment recorded revenues of $3.7 billion in the reported quarter, up 2.2% from the first quarter of 2012. Foreign currency movement negatively impacted sales in the segment by 1.1%. Sales in the domestic market grew 2.4% year-over-year to $1.3 billion, whereas the international market recorded year-over-year growth of 2.1%. OTC sales increased 14.4% in the US probably due to the re-launch of a few key products and the impact of the acquisition of full ownership rights to certain digestive health products.

Maintains Guidance

Although Johnson & Johnson’s first quarter and full-year 2012 earnings surpassed expectations, the company maintained its 2013 earnings guidance of $5.35 to $5.45 per share. The Zacks Consensus Estimate currently stands at $5.40 per share, within the company’s guidance range.

Johnson & Johnson currently carries a Zacks Rank #3 (Hold). The company has been trying to offset the declining sales of some of its important products by bringing in new products through in-licensing deals and acquisitions. We believe the diversity and strength of the company’s underlying businesses will continue to provide strong growth in future. The Synthes deal should also drive results. While we expect Johnson & Johnson to continue facing headwinds in the form of EU pricing pressure, manufacturing issues and US healthcare reform, we believe Johnson & Johnson’s diversified business model, lack of cyclicality, strong financial position will continue helping the company pave its way through tough situations.

Currently, Novartis (NVS - Free Report) , a Zacks Rank #2 (Buy) stock, looks well-positioned. Another company that looks well-positioned is UCB (UCBJF - Free Report) , which carries a Zacks Rank #1 (Strong Buy).

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